Bill Text: HI HB480 | 2010 | Regular Session | Introduced
Bill Title: Hawaii Innovation Investment Fund
Spectrum: Partisan Bill (Republican 6-0)
Status: (Introduced - Dead) 2009-05-11 - Carried over to 2010 Regular Session. [HB480 Detail]
Download: Hawaii-2010-HB480-Introduced.html
Report Title:
Hawaii Innovation Investment Fund
Description:
Establishes the Hawaii Innovation Investment Fund, a professionally managed fund of funds, and allows the ERS to invest moderate amounts in Hawaii venture capital.
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HOUSE OF REPRESENTATIVES |
H.B. NO. |
480 |
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TWENTY-FIFTH LEGISLATURE, 2009 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO THE INNOVATION ECONOMY.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The purpose of this Act is to encourage the employees' retirement system to invest in Hawaii venture capital by establishing the Hawaii innovation investment fund, a professionally-managed fund of funds, in which the employees' retirement system may invest. These actions will allow the retirement system to achieve investment returns for the pension fund, attract private investment capital and expertise, and assist the growth of Hawaii's technology companies and high growth businesses.
SECTION 2. Chapter 211F, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"211F-___. Definitions. As used in this part:
"Agency" means each state or county board, commission, department, or officer authorized by law to make rules, except those in the legislative or judicial branches.
"Fiduciaries" means pension funds, corporations, limited liability companies, partnerships, banks, savings institutions, trust companies, and the officers, directors, trustees, partners, managers, advisors, employees, and representatives of the State employees' retirement system.
"Hawaii venture capital investments" means any of the following investments in a business:
(1) Direct debt and equity investments in privately-held Hawaii companies; and
(2) Investment in limited partnerships, limited liability companies, or other entities that make private debt and equity investments in privately held Hawaii companies, whether directly or through investments in limited partnerships, limited liability companies, or other entities, including but not limited to investments consisting of shares of capital stock, convertible notes and other debt instruments, securities, warrants, options, or other rights to acquire such securities from privately held Hawaii companies.
"Privately held Hawaii companies" means any privately held corporation, limited liability company, partnership, or other entity that is headquartered, or has substantial operations, in Hawaii.
"System" means the employees' retirement system of the State of Hawaii."
SECTION 3. Chapter 211F, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"211F-___. Hawaii innovation investment fund. (a) There is established the Hawaii innovation investment fund into which shall be deposited:
(1) Moneys from the system;
(2) Moneys from private investors; and
(3) Interest payments and proceeds from investments made by the fund.
(b) Moneys in the Hawaii innovation investment fund shall be used to invest in Hawaii and other venture capital investment opportunities.
(c) Should the system choose to invest a portion of its assets in the fund, investment of the fund in one or more professionally managed venture capital funds or one or more venture capital fund of funds will be overseen by an advisory board comprised of seven members: four members from the business community with experience in venture capital investing, fund of funds management, or as an entrepreneur growing companies and achieving liquidity events; a representative of the Board of the Employees’ Retirement System; a representative from the department of budget and finance; and a representative of the department of business, economic development, and tourism or an attached agency thereof. Members of the advisory board shall be selected based on their knowledge and ability to successfully manage venture capital investments, attract capital from local and external sources, and assist companies to grow.
(d) Of the four members private sector members of the advisory board, one shall be appointed by the governor, one shall be appointed by the governor from a list of three names nominated by the president of the senate, and one shall be appointed by the governor from a list of three names nominated by the speaker of the house of representatives for staggered terms pursuant to section 26-34. The representative from the department of business, economic development, and tourism shall serve as chairperson of the board until such time as a chairperson is elected by the board from the membership. The board shall elect such officers as may be necessary.
The members of the advisory board shall serve without compensation, but may be reimbursed for expenses, including travel expenses, incurred in the performance of their duties.
(e) The advisory board shall be attached to the department of business, economic development, and tourism for administrative purposes.
(f) The advisory board shall adopt rules for its conduct and management of the fund and shall use its best efforts to maximize return on investments by developing investment strategies for a diverse portfolio focused on investments in Hawaii in order to attract private investment in the fund, develop local investment expertise, stimulate the development of emerging venture capital funds, and encourage opportunities for co-investment with offshore funds.
The advisory board may hire a fund manager to direct the investment operations. Any investments made through the Hawaii innovation investment fund will be reported to the legislature on an annual aggregated basis, indicating the number of investments made into venture capital funds investing in Hawaii, the amount of investment made in those venture capital funds, and the number and amount of investments made by those venture capital funds in Hawaii companies.
(g) A board member shall not participate in any corporation decision to invest in, purchase from, sell to, borrow from, loan to, contract with, or otherwise deal with any person with whom or entity in which the board member has a substantial financial interest.
(h) Any returns on investment made by tax-paying investors in the fund shall be exempt from Hawaii state income and franchise taxes under chapters 235, 241, and 431.
(i) Expenditures associated with operations and oversight of the fund, exclusive of actual investments made, will be provided through the Hawaii strategic development corporation revolving fund."
SECTION 4. Section 88-119, Hawaii Revised Statutes, is amended to read as follows:
"§88-119 Investments. Investments may be made in:
(1) Real estate loans and mortgages. Obligations (as defined in section 431:6-101) of any of the following classes:
(A) Obligations secured by mortgages of nonprofit corporations desiring to build multirental units (ten units or more) subject to control of the government for occupancy by families displaced as a result of government action;
(B) Obligations secured by mortgages insured by the Federal Housing Administration;
(C) Obligations for the repayment of home loans made under the Servicemen's Readjustment Act of 1944 or under Title II of the National Housing Act;
(D) Other obligations secured by first mortgages on unencumbered improved real estate owned in fee simple; provided that the amount of the obligation at the time investment is made therein shall not exceed eighty per cent of the value of the real estate and improvements mortgaged to secure it, and except that the amount of the obligation at the time investment is made therein may exceed eighty per cent but no more than ninety per cent of the value of the real estate and improvements mortgaged to secure it; provided further that the obligation is insured or guaranteed against default or loss under a mortgage insurance policy issued by a casualty insurance company licensed to do business in the State. The coverage provided by the insurer shall be sufficient to reduce the system's exposure to not more than eighty per cent of the value of the real estate and improvements mortgaged to secure it. The insurance coverage shall remain in force until the principal amount of the obligation is reduced to eighty per cent of the market value of the real estate and improvements mortgaged to secure it, at which time the coverage shall be subject to cancellation solely at the option of the board. Real estate shall not be deemed to be encumbered within the meaning of this subparagraph by reason of the existence of any of the restrictions, charges, or claims described in section 431:6-308;
(E) Other obligations secured by first mortgages of leasehold interests in improved real estate; provided that:
(i) Each leasehold interest at the time shall have a current term extending at least two years beyond the stated maturity of the obligation it secures; and
(ii) The amount of the obligation at the time investment is made therein shall not exceed eighty per cent of the value of the respective leasehold interest and improvements, and except that the amount of the obligation at the time investment is made therein may exceed eighty per cent but no more than ninety per cent of the value of the leasehold interest and improvements mortgaged to secure it;
provided further that the obligation is insured or guaranteed against default or loss under a mortgage insurance policy issued by a casualty insurance company licensed to do business in the State. The coverage provided by the insurer shall be sufficient to reduce the system's exposure to not more than eighty per cent of the value of the leasehold interest and improvements mortgaged to secure it. The insurance coverage shall remain in force until the principal amount of the obligation is reduced to eighty per cent of the market value of the leasehold interest and improvements mortgaged to secure it, at which time the coverage shall be subject to cancellation solely at the option of the board;
(F) Obligations for the repayment of home loans guaranteed by the department of Hawaiian home lands pursuant to section 214(b) of the Hawaiian Homes Commission Act, 1920; and
(G) Obligations secured by second mortgages on improved real estate for which the mortgagor procures a second mortgage on the improved real estate for the purpose of acquiring the leaseholder's fee simple interest in the improved real estate; provided that any prior mortgage shall not contain provisions that might jeopardize the security position of the retirement system or the borrower's ability to repay the mortgage loan.
The board may retain the real estate, including leasehold interests therein, as it may acquire by foreclosure of mortgages or in enforcement of security, or as may be conveyed to it in satisfaction of debts previously contracted; provided that all the real estate, other than leasehold interests, shall be sold within five years after acquiring the same, subject to extension by the governor for additional periods not exceeding five years each, and that all the leasehold interests shall be sold within one year after acquiring the same, subject to extension by the governor for additional periods not exceeding one year each;
(2) Government obligations, etc. Obligations of any of the following classes:
(A) Obligations issued or guaranteed as to principal and interest by the United States or by any state thereof or by any municipal or political subdivision or school district of any of the foregoing; provided that principal of and interest on the obligations are payable in currency of the United States; or sovereign debt instruments issued by agencies of, or guaranteed by foreign governments;
(B) Revenue bonds, whether or not permitted by any other provision hereof, of the State or any municipal or political subdivision thereof, including the board of water supply of the city and county of Honolulu, and street or improvement district bonds of any district or project in the State; and
(C) Obligations issued or guaranteed by any federal home loan bank, including consolidated federal home loan bank obligations, the Home Owner's Loan Corporation, the Federal National Mortgage Association, or the Small Business Administration;
(3) Corporate obligations. Below investment grade or nonrated debt instruments, foreign or domestic, in accordance with investment guidelines adopted by the board;
(4) Preferred and common stocks. Shares of preferred or common stock of any corporation created or existing under the laws of the United States or of any state or district thereof or of any country;
(5) Obligations eligible by law for purchase in the open market by federal reserve banks;
(6) Obligations issued or guaranteed by the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, or the African Development Bank;
(7) Obligations secured by collateral consisting of any of the securities or stock listed above and worth at the time the investment is made at least fifteen per cent more than the amount of the respective obligations;
(8) Insurance company obligations. Contracts and agreements supplemental thereto providing for participation in one or more accounts of a life insurance company authorized to do business in Hawaii, including its separate accounts, and whether the investments allocated thereto are comprised of stocks or other securities or of real or personal property or interests therein;
(9) Interests in real property. Interests in improved or productive real property in which, in the informed opinion of the board, it is prudent to invest funds of the system. For purposes of this paragraph, "real property" includes any property treated as real property either by local law or for federal income tax purposes. Investments in improved or productive real property may be made directly or through pooled funds, including common or collective trust funds of banks and trust companies, group or unit trusts, limited partnerships, limited liability companies, investment trusts, title-holding corporations recognized under section 501(c) of the Internal Revenue Code of 1986, as amended, similar entities that would protect the system's interest, and other pooled funds invested on behalf of the system by investment managers retained by the system;
(10) Other securities and futures contracts. Securities and futures contracts in which in the informed opinion of the board, it is prudent to invest funds of the system, including currency, interest rate, bond, and stock index futures contracts and options on the contracts to hedge against anticipated changes in currencies, interest rates, and bond and stock prices that might otherwise have an adverse effect upon the value of the system's securities portfolios; covered put and call options on securities; and stock; whether or not the securities, stock, futures contracts, or options on futures are expressly authorized by or qualify under the foregoing paragraphs, and notwithstanding any limitation of any of the foregoing paragraphs (including paragraph (4)); and
(11) Private placements. Investments in institutional
blind pool limited partnerships, limited liability companies, or direct
investments that make private debt and equity investments in privately held
companies, including but not limited to investments in Hawaii high technology
businesses or venture capital investments that, in the informed opinion of the
board, are appropriate to invest funds of the system. In evaluating venture
capital investments, the board shall consider[, among other things, the
impact an investment may have on job creation in Hawaii and on the state
economy.] Hawaii venture capital investment opportunities unless, under
the circumstances, it is not prudent to do so. At any given time, the system
shall have $100 million allocated for Hawaii venture capital investments
unless, under the circumstances, it is not prudent to do so. The system may
contract with one or more management companies to manage and invest these
moneys. The system may enter into contracts for the provision of investment
advice or other services that the board deems reasonable and necessary to
fulfill its duties.
Investment of these funds may be made in whole or in part through the Hawaii Innovation Investment Fund.
(A) Limited investment in privately-held Hawaii companies authorized.
(i) Unless prohibited by federal law or regulations promulgated thereunder, and notwithstanding any law to the contrary, or rules adopted pursuant thereto, fiduciaries may invest in Hawaii venture capital investments up to two and one-half per cent of their funds eligible for investment; provided that their total outlay in Hawaii venture capital investments shall not be more than ten per cent of their capital, which includes common capital stock, certified surplus, capital notes, and undivided profits. Fiduciaries acting in accordance with this section shall not be in violation of any prudent person or prudent investor rule. If any venture capital investments in privately held Hawaii companies are in violation of this chapter by virtue of a subsequent reduction in the amount of funds eligible for investment, the fiduciary shall not be in violation of any prudent person or prudent investor rule.
(ii) The director of any agency whose duties and powers include regulating the activities of any fiduciaries governed by this chapter may adopt rules for the implementation of this chapter in accordance with chapter 91.
The board shall report annually to the legislature on any Hawaii venture capital investments it has made; provided that if the board determines it is not prudent to invest in any Hawaii venture capital investments the board shall report the rationale for the decision. The board, by January 1, 2008, shall develop criteria to determine the amount of funds that may be prudently invested in Hawaii private placement investments."
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2009.
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INTRODUCED BY: |
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